House prices, an ageing population and consumer expectations are prompting a shift in the UK housing market, consumer research from the Building Societies Association suggests. The latest Property Tracker survey results show a lack of downsizing in later life, despite plans to do so.
- Almost six in 10 existing homeowners (58%) expect to live out most of the rest of their lives in the same home they are living in when they first retire.
- The comparatively large number of homeowners who stay put after retirement today is having an effect on the price of family homes.The lack of supply of larger family homes puts pressure on affordability for those who are in their first homes and looking to trade up. In the past four years the price gap in London between a purpose-built flat and a terraced house - often considered a ‘second step’ property – has risen by around £100,000.
- But the demand to downsize does exist with over a quarter of consumers (26%6) saying that they will want to downsize to a smaller home for their later retirement years (75+).This figure compares to just 7% who actually downsize today and a small fraction (5%) who say they want to move into specialist retirement/sheltered housing.
- Amongst first-time buyers the picture is slightly different with an almost half and half split between those who intend to stay put when they retire (42%) and those who plan to move into a smaller home (40%).
- The challenge facing first time buyers mean most now buy in their thirties, and the length of mortgage term they need has increased. In 2015 more than half (57%) of first-time buyers getting a loan from a building society had a term over 25 years, compared to around 30% of second and subsequent home buyers.Back in 2010, 62% of first-time buyer loans were advanced with a term of 25 years or less.
This data tells us a number of things about the UK housing and mortgage markets:
The number of people who would like to downsize in retirement substantially outstrips the number that actually take the plunge. One reason may be that there are not enough of the right kind of homes available for this growing group in society. Making a move into a traditional retirement home is not for everyone. Many people - who are now fitter for longer- may want a quality, smaller, accessible home where they can live independently, in proximity to amenities and close to friends and family.
Similarly, downsizing may still require some kind of mortgage, even if just to cover the fees and charges associated with moving. These will be provided by mortgage lenders which have expertise in assessing the different risks that apply to older borrowers. Twenty-eight building societies now have an age limit of 80 years or above or have removed their upper age limit all together. These lenders assess risk and affordability in a way that’s appropriate to this customer group.
Commenting, Paul Broadhead, Head of Mortgage Policy at the Building Societies Association, said:
“To downsize or not must always be a choice for the individual, but unless this important group is catered for, the home supply and price issues will continue to ripple down the market to other buyers. Already, a substantial proportion of first-time buyers need to opt for a term of 30, 35 or even 40 years to be able to afford their first home. This means that today’s typical 30 year-old first-time buyer may already have a term that takes them to retirement age. Though most people will continue to pay off their mortgage before reaching retirement, this may become less common for future generations.
“This cycle will end only when the Government, local authorities, house-builders and mortgage lenders take action in light of an evolving property buying demographic. At present, most banks are not keen on lending to older borrowers. I don’t expect all lenders to cater for this market, but we are moving towards a recognition that this market will become more mainstream.”